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November/December 2011, 
Vol. 93, No. 6
Posted 2011-11-01

Banking Industry Consolidation and Market Structure: Impact of the Financial Crisis and Recession

The number of U.S. commercial banks and savings institutions declined by 12 percent between December 31, 2006, and December 31, 2010, continuing a consolidation trend begun in the mid-1980s. Banking industry consolidation has been marked by sharply higher shares of deposits held by the largest banks—the 10 largest banks now hold nearly 50 percent of total U.S. deposits. However, antitrust policy is predicated on the assumption that banking markets are local in nature, and enforcement has focused on preventing bank mergers from increasing the concentration of local banking markets. The author finds little change over time in the average concentration of local banking markets or the average number of dominant banks in them, even during the recent financial crisis and recession when numerous bank failures and several large bank mergers occurred. Concentration did not increase substantially, on average, in markets where mergers occurred among banks when both the acquiring and acquired banks had existing local offices, though rural markets generally saw larger increases in concentration from such mergers than did urban markets. Although the structures of local banking markets, on average, have changed little since the mid-1980s, deposit concentration has continued to increase at the level of U.S. Census regions. As technology evolves and the costs of obtaining banking services from distant providers fall further, local market characteristics may become less relevant for analysis of competition in banking.